NEWS: Union Pacific Finds Going Costly
Wednesday August 26, 1:26 pm Eastern Time
Union Pacific Finds Going Costly
By JOE RUFF
Associated Press Writer
NORTH PLATTE, Neb. (AP) -- Welding machines the size of semitrailer trucks straddle new Union Pacific (NYSE:UNP - news) rail lines in this vast expanse of Nebraska's western plains that is home to the busiest segment of the nation's largest railroad.
Nearly 500 workers in the summer heat grind ends of the rails smooth, cut new rail bed and lay concrete ties in a $366 million track expansion and maintenance project just east of North Platte.
About 40 percent of Union Pacific's trains hit this 108-mile stretch, carrying cargo as diverse as airplane wings, automobiles, frozen vegetables and coal, traveling from Los Angeles to Chicago, Wyoming to Texas.
The track work here and around Union Pacific's 36,000-mile network already is making progress at easing congestion that made the railroad an object of ridicule and the target of customer lawsuits last year. But much remains to be done to smooth out the stormy 1996 merger of Union Pacific and Southern Pacific.
The price tag for upgrading track and trains is running at least $200 million above the $1.4 billion Union Pacific had projected. The work now is expected to take two more years than the five years originally planned.
Still, things are going well enough that the railroad showed off some of its expansion on a recent media tour of its routes to Wyoming coal fields.
Like the rest of Union Pacific's 23-state system, travel slowed through this stretch last year because of congestion that cost the U.S. economy an estimated $4 billion in stalled production and more expensive transportation.
Only now is traffic picking up, and railroad executives hope putting a third track down will speed service still more.
If all goes as planned, trains will go 70 mph instead of 60. Instead of 125 trains each day, more than 200 could roar through daily by year's end. When one track undergoes maintenance, the other two will run full speed.
''It'll sure as hell give us room to grow for many years,'' said Dick Davidson, chief executive of Union Pacific, who led the recent tour.
''I'm on a mission,'' Davidson said. ''I want people to know that Texas and Louisiana is no longer a problem and gridlock is no longer a factor. I want people to know that the central corridor will give us more capacity. I want people to see what's driving this railroad.''
But Union Pacific has a long way to go to please its customers, said Ed Rastatter, director of policy for the National Industrial Transportation League, which represents about 1,000 rail and truck users.
Most agree the crisis is over, but they're still not getting the service they expect, Rastatter said. Merger benefits were supposed to include faster transportation times, but unforeseen delays in service continue and train times are too slow, he said.
''Almost everybody thinks they have a long way to go to normal, let alone where they want to be with the benefits of the merger,'' he said.
The merger that created the biggest U.S. railroad quickly challenged the notion that bigger is better.
A surge in business surprised Union Pacific in 1997, even as it suffered from a rash of wrecks and difficulties merging with Southern Pacific's aging equipment.
Average train speeds systemwide now are at about 14 mph, slower than the pre-crisis 18 mph. Union Pacific lost $633 million over the last three quarters, including settlements with customers angry over money lost to delivery delays.
Davidson was not prepared to say when the railroad will see profits.
''We're not making any predictions at this point in our life,'' Davidson said. ''We used to help analysts with our vision, but we're not doing that right now until we gain some confidence.''
Analyst Cornelius Sewell of Argus Research in New York said Union Pacific should see some profits in 1999, perhaps by this year's fourth quarter. ''I am betting this is a strong, well established railroad and they will get their act together,'' Sewell said. ''They have made some forecasts and they've been pretty much off target so they're not saying much these days.''
Already, Union Pacific stock is beginning to recover a bit after losing nearly half its value in the past year.
The road to restoring business has been rough. The railroad hired engineers and conductors at record levels, sped up construction across its central corridor in Nebraska and even gave business away to rivals like Burlington Northern (NYSE:BNI - news). It recently decided to split management of the railroad into three regions after determining centralized control was not working.
While the worst may be over, the railroad still faces a difficult fall.
Union Pacific and Burlington Northern are warning farmers that they do not have enough rail cars to handle what is expected to be an unusually difficult harvest season.
Low grain prices and reduced exports in the aftermath of Asia's economic crisis have led farmers and grain elevators to store much of last year's harvest in hopes of improving markets.
At the same time, record wheat and soybean harvests are expected this fall, and the government is predicting the country's second-largest corn harvest.
With all that produce to move, there is little any of the railroads can do to prevent bottlenecks, said Don Hutchens, executive director of the Nebraska Corn Board.
''I understand that there's been significant efforts by the railroad,'' Hutchens said of Union Pacific's investments in its corridor across Nebraska. ''Whether it will reduce the chances of a bottleneck at this year's harvest, I doubt it.'' |
